Weakness in Government Legislation to combat corruption and Money Laundering

BRIBERY & CORRUPTION

Index Rating (12-Good / 92 Bad)

Transparency International Corruption Index 36/194

World Governance Indicator – Control of corruption 39/194

ANTI-MONEY LAUNDERING

FATF Status

Algeria is on the FATF List of Countries that have been identified as having strategic AML deficiencies

Latest FATF Statement – 27 February 2015

Algeria has taken steps towards improving its AML/CFT regime, including by enacting AML/CFT amendments on 15 February 2015 and issuing new customer due diligence guidelines on 8 February 2015. The FATF welcomes this development, but has not assessed the new measures due to their recent nature, and therefore the FATF has not yet determined the extent to which they address any of the following issues: (1) adequately criminalising terrorist financing; (2) establishing and implementing an adequate legal framework for identifying, tracing and freezing terrorist assets and (3) adopting customer due diligence obligations in compliance with the FATF Standards. Algeria also needs to issue corresponding asset freezing regulations. The FATF encourages Algeria to address its remaining deficiencies and continue the process of implementing its action plan.

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Algeria was undertaken by the Financial Action Task Force (FATF) in 2011. According to that Evaluation, Algeria was deemed Compliant for 3 and Largely Compliant for 8 of the FATF 40 + 9 Recommendations. It was partially compliant or Non-Compliant for 5 of the 6 Core Recommendations.

US Department of State Money laundering assessment (INCSR)

Algeria was deemed a Jurisdiction of Concern by the US Department of State 2014 International Narcotics Control Strategy Report (INCSR).

Key Findings from the report are as follows:

Perceived Risks:

The extent of money laundering through formal financial institutions in Algeria is thought to be minimal due to stringent exchange control regulations, a large segment of the economy that is cash-based, and an antiquated banking sector dominated by state-owned banks. The restricted convertibility of the Algerian dinar enables the central bank to monitor all international financial operations carried out by public and private banking institutions. Notable criminal activity includes trafficking, particularly of drugs and cigarettes, but also arms and stolen vehicles; kidnapping for ransom (KFR); theft; extortion; and embezzlement. Public corruption remains a serious concern as does terrorism. Algerian authorities are increasingly concerned by cases of customs fraud and trade-based money laundering. Other risk areas for financial crimes include unregulated alternative remittance and currency exchange systems, tax evasion, abuse of real estate transactions, commercial invoice fraud, and a cash-based economy. Most money laundering is believed to occur primarily outside the formal financial system, given the large percentage of financial transactions occurring in the informal gray and black economies in general. Al-Qaida in the Islamic Maghreb, which originated in Algeria, is currently confined to outlying areas but has a history of terrorist activity in Algiers and elsewhere in the country, including suicide attacks, KFR, roadside bomb attacks, and assassinations.

After several years of working with Algeria to address its strategic AML/CFT deficiencies, on October 18, 2013, FATF added Algeria to its Public Statement, noting Algeria’s lack of sufficient progress in addressing noted deficiencies, despite its high-level political commitment to implement its action plan within established timelines. Algeria should continue to work to address remaining deficiencies, including by adequately criminalizing terrorist financing and establishing and implementing an adequate legal framework for identifying, tracing, and freezing terrorist assets.

INVESTMENT CLIMATE – Executive Summary

Algeria remains a potentially lucrative but uncertain and challenging market for many U.S. businesses, especially those with little experience in the Middle East and North Africa. While hydrocarbons are still the backbone of the Algerian economy, accounting for 98% of exports, 40-45% of GDP and 70% of budget revenues, there are opportunities in numerous other sectors including (but not limited to) agriculture, infrastructure, housing, alternative energy, pharmaceuticals and recycling

The IMF has predicted that unless GOA diversifies its hydrocarbon-based economy, by 2016/7 decreasing exports and falling hydrocarbon revenues will prevent GOA from meeting its current budgetary and subsidy obligations. GOA is sensitive to this projection and is acting, however tentatively and inefficiently, to begin the diversification process. This is the proverbial “ground floor” that presents significant opportunity for American companies in virtually every sector of the economy.

Companies must overcome the language barrier, distance, vagaries and corruption with the customs systems, an entrenched bureaucracy, and price/quality competition from Chinese, Turkish, and European businesses. International firms already here complain that the GOA lacks an economic vision and that laws and regulations both are constantly shifting and are applied unevenly, raising the perception of commercial risk for foreign investors. Business contracts are likewise subject to interpretation and revision, which has proved challenging to U.S. and international firms. The 49/51 law (requiring majority Algerian ownership of most businesses), insufficient IPR enforcement, Algeria’s closed borders and limited regional trade is another drawback, because the Algerian market on its own may not be attractive to firms that can locate elsewhere and create a regional distribution hub (e.g., the Singapore model). By some estimates, the informal economy controls 40-50 percent of the consumer goods market. Informal sector dominance, which supports an influx of cheap and/or counterfeit goods, makes it difficult for more expensive, genuine U.S. products to compete.